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27 November 2020

Are you investment-ready?

Investment advice for startups

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Published on November 27, 2020

Of the multiple challenges faced by entrepreneurs, securing funding is one that often seems impossible. In this short article, Holly Ann Baldwin introduces the topic of investment for startups with insights into the factors that often worry young entrepreneurs.

Why investment at all?

Recent studies show that 29% of startups fail because they run out of cash.[1] So, while bootstrapping is an important approach in entrepreneurship, there comes a time when external investment is the best (and sometimes only) viable option for young businesses.

But what are the added benefits of securing external investment, beyond the practical benefit of financial security in times of need? There are a few.

In the first instance, investors can bring the right strategic network to a business, increasing its chances of success. Secondly, investors may have experience in the market a startup is trying to enter. This can be crucial for startups to know their competition, refine their market-entry strategies, and predict risks. Moreover, depending on their seniority, investors can turn out to be a reliable resource for business advice in the broader sense, providing insights into pricing and cost issues, team management, and negotiation.

Investors are “in it with you”. Both investors and bank lenders are in the business of making money, but there is a crucial difference between the two: the investor’s mindset. While bank lenders give money and expect it to be repaid with interest within an agreed period of time, investors give money in exchange for ownership of part of a business. This is significantly more risky for them, and gives startups a sense of reassurance that the investor is on their side and shares their interest in success.

When to seek investment?

Knowing when it is the right time to engage with investors may not be so obvious to young businesses struggling for cash. According to experts, entrepreneurs who seek funding may believe they are ready to speak to investors when they are far from prepared. This often results into making investment-seeking efforts far too early, causing loss of resources.

Building a network of engaged investors is a long process – and there are no shortcuts. First, startups need to create lists of leads, prioritise them, develop an effective sales pitch, and prepare for a lot of cold calling. The key thing in the process is to be strategic: instead of emailing or calling everyone with a venture capitalist title, young entrepreneurs need to carry out a careful evaluation of their investment leads to make connections and get warm introductions.

What else?

On Wednesday 2 December we will be meeting Francesca O’Brien from SyndicareRoom about investment readiness. Join us online to find out how to assess your investment readiness and to learn tips and strategies for your investment plans.

Click here to register to attend.

[1]   CB Insights (2109). The Top 20 Reasons Startups Fail.

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